A Note on Equilibrium Selection in Polya-Urn Coordination Games
AbstractWe study equilibrium selection in coordination games played by a population whose size increases over time. In each time period, a new player enters the economy, observes current strategy shares and irreversibly chooses a strategy on the basis of expected payoffs. We employ a simple Polya-Urn scheme to discuss the efficiency of long-run equilibria under alternative individual decision rules (e.g. best-reply, logit, etc.). We show that the system delivers a predictable outcome only when agents employ either a linear or a logit probability rule. If agents employ deterministic best-reply rules, Pareto-efficient coordination can occur, but the actual outcome depends on initial conditions and chance. In all other cases, coexistence of strategies characterizes equilibrium configurations.
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Bibliographic InfoPaper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2005/05.
Date of creation: 20 Apr 2005
Date of revision:
Coordination Games; Equilibrium Selection; Pareto-Efficient vs. Risk- Dominant Equilibrium; Polya-Urn Schemes.;
Other versions of this item:
- Giorgio Fagiolo, 2005. "A Note on Equilibrium Selection in Polya-Urn Coordination Games," Economics Bulletin, AccessEcon, vol. 3(45), pages 1-14.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-14 (All new papers)
- NEP-CBE-2005-05-14 (Cognitive & Behavioural Economics)
- NEP-GTH-2005-05-14 (Game Theory)
- NEP-TID-2005-05-14 (Technology & Industrial Dynamics)
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